One of Phoenix Area’s Latest Office Developments Lands Major Lease

Article originally posted on CoStar on May 16, 2024

One of the newest office developments to land on the Phoenix market has landed a major deal in a sign that tenants are willing to commit to long-term leases, as long as they’re in the nicest and newest properties.

WillScot Mobile Mini Holdings, a publicly traded company that leases and sells modular offices and portable storage units, signed a deal for just shy of 90,000 square feet at Scottsdale Entrada, an office complex in the greater Phoenix area that started construction in April 2020. The new lease accounts for more than one-third of the properties total 243,939-square-foot expanse and is the largest to be signed in the region since the start of the year, according to CoStar data.

WillScot Mobile Mini, which is currently based at 4646 E. Van Buren St. at the East Gateway Center in Phoenix, is expected to move into its new Scottsdale space sometime next year. It signed a 10-year agreement with landlord Bridge Commercial Real Estate that will kick off November 2025, according to CoStar data.

Along with affirming companies’ mounting interest in high-quality office properties, WillScot Mobile Mini’s deal stands out in that, rather than shrink its existing footprint to move to more expensive space, the Phoenix-based company is significantly expanding. Its future corporate hub will be about double its existing East Gateway headquarters, where the company now occupies less than 46,700 square feet.

Demand for office space across the country has dissolved in the years since the pandemic’s 2020 outbreak. Tenants have collectively handed back more than 200 million square feet since the beginning of 2020 — more than Phoenix’s entire office inventory — according to CoStar data, but top-tier properties have stood out for their ability to attract deals despite the widespread decline.

U.S. office buildings developed within the past three years have been able to fill more square footage compared to what they’ve lost, according to Phil Mobley, CoStar’s national director of office analytics. Older properties, on the other hand, are struggling to retain their existing tenant lineups, and sublease space at properties between three and 10 years old has increased from about 1.5% in 2019 to upward of 6% today.

What’s more, many office tenants are following similar moves as WillScot Mobile Mini, especially those that occupy space in older properties and signed their leases in the late 2010s at a point when most major markets were at their rental rate peak. Increased scrutiny on how companies use their space and how much they pay for it, in addition to slower hiring plans, have stewed together to form a murky outlook for the broader office market, Mobley said, but most tenants are expected to look for ways to save occupancy expenses once their leases expire and are likely to pursue chances to relocate to newer spaces offered at today’s lower rates.

WillScot Mobile Mini’s current headquarters property was built in 2022, according to CoStar data. The company did not immediately respond to CoStar News’ emailed requests for comment.

With access to the Sky Harbor Airport, nearby retail, talent generated by Arizona State University and plenty of transit options, the neighborhood surrounding Scottsdale Entrada has become increasingly popular among both employers and young professionals as an alternative to central Phoenix.

Office tenants are willing to pay a premium to land space in the Scottsdale area, CoStar Director of Market Analytics Connor Devereux said, with rents averaging about $33 per square foot, a roughly 10% premium compared to the greater Phoenix area. Tech companies such as Tiktok, Qwick and Indeed have planted a stake in the region, and with almost no new construction moving through the pipeline, demand for existing space could tick up if tenant interest holds.

JLL’s Ryan Bartos and Jami Savage-Gray brokered the deal on behalf of WillScot Mobile Mini. Brett Abramson, John Bonnell, Chris Latvaaho and Chris Beall, all with Stream Realty Partners, represented landlord Bridge Commercial Real Estate in the deal.